On Friday, Feb. 20, PIMCO announced that its chief economist, Paul McCulley, will be leaving the firm at the end of February. McCulley had returned to PIMCO in May 2014; he’d previously spent more than a decade at the firm before departing in 2010. In his role as chief economist, McCulley was not named as a portfolio manager on any funds, but he did sit on the firm’s influential Investment Committee.
While Morningstar continues to keep a close eye on manager turnover at PIMCO, McCulley’s departure does not come as a surprise and does not appear to be an indication of flagging morale at the firm. Indeed, as we discussed in our November report, PIMCO Recap: Flows, Ratings, and Firm-Level Views, senior PIMCO leadership had indicated in recent months that McCulley’s future at the firm was uncertain given that McCulley had reportedly returned to the firm at the personal request of then-CIO Bill Gross.
The other issue posed by McCulley’s departure is its impact on the effectiveness of the firm’s Investment Committee. Indeed, together with former co-CIO Mohamed El-Erian and Gross, McCulley was considered one of the firm’s top macroeconomic thinkers. However, while it will take some time for the Investment Committee to prove itself, there are some reasons for optimism. For starters, the 2014 expansion of the Investment Committee to include then-deputy CIOs Mark Kiesel, Dan Ivascyn, Andrew Balls, and Mihir Worah promised to better integrate the perspectives of portfolio managers plugged into the firm’s bottom-up fundamental research. Meanwhile, PIMCO has been on an active hiring campaign. Several recent hires, including Joachim Fels as global economic advisor and former Presidential economic adviser Gene Sperling as a consultant, together with the return of Nobel laureate Michael Spence, also as a consultant, add macroeconomic heft. Finally, the returns of veteran manager Chris Dialynas and Marc Seidner, CIO for nontraditional strategies, to the firm and the Investment Committee are also positive signs.
Morningstar has not made any changes to its ratings on the PIMCO lineup of mutual funds as a result of McCulley’s departure. In particular, PIMCO Total Return PTTRX retains its Morningstar Analyst Rating of Bronze. This rating reflects the significant and impressive resources that PIMCO dedicates to this strategy and the strength and experience of the three PIMCO veterans who have taken over management of the fund. However, the Bronze rating also reflects uncertainty regarding continued outflows, the reshuffling of management responsibilities, and ongoing changes to the Investment Committee.
